Riversdale Resources

Coal Exploration and Development Company

The Municipality of Crowsnest Pass in southwestern Alberta has not been host to a working coal mine for more than 55 years, but a junior mining company from Sydney, Australia has comprehensive plans to change all that by revitalizing the once prominent and vibrant industry in the region for decades to come.

In August, 2013, Riversdale Resources purchased properties in Crowsnest Pass, including the Grassy Mountain property north of Blairmore, a town of about 3,000 people, from the previous owners Devon and Consol Energy for US$49.5 million. Since then, Riversdale Resources Managing Director Steve Mallyon and his team have worked tirelessly in advancing the project.

The Canadian Business Journal spoke with Mallyon and Chief Financial Officer Anthony Martin, who both spend the bulk of their time currently working out of the Vancouver office, although each is out in Calgary on a regular basis keeping a close eye on the development of what stands to be a very successful business venture.

“It’s just an hour flight to Calgary then a two-hour drive down to the site,” Mallyon says of the commute from the Vancouver office to Crowsnest Pass.

Setting Up in Canada

Riversdale Resources previously had tremendous success in South Africa and Mozambique with still another potentially strong venture in Alaska known as Chickaloon. The corporate plan after being in Africa for almost a decade was to return to Australia and seek out new opportunities, but the Canadian option quickly moved to the top of the list. The abundant supply of coking coal would primarily be shipped to Asia for steel-making although other international destinations could also be serviced, including countries in South America such as Brazil.

“After conducting our studies it looked to be a very attractive project based on what we had learned and then we looked at a number of methodologies on how to finance it, including an IPO but in the end we relied upon two of our long-term supporters Macquarie Bank and Resource Capital Funds,” Mallyon says. “As of today the structure hasn’t changed – we’re a public company within the Australian corporation’s law terminology but we’re an unlisted public company.”

The resource is increasing in size – and to some extent in quality – and the executives from Riversdale are seeing the real potential of Grassy starting to emerge. Mallyon and his team conducted extensive due diligence including their own study and had the advantage of understanding of what was there, which did help in the decision to spend all that money.

The land mass at Crowsnest Pass is enormous, as one would imagine, including about 14,000 hectares of mineral lease and 1,400 hectares of surface land title. The mine will include an electrical power system, haul roads, a coal conveyor system, a coal preparation plant, a rail load-out, maintenance shops, a laboratory and other necessary facilities.

“One of the attractive parts of the portfolio, particularly with respect to Grassy Mountain, is it makes permitting easier and removes the issues some projects have in other parts of the world with landholders and other people owning the freehold rights vs. the mineral rights,” notes Martin.

At Riversdale, there is a distinct motto that ‘experience pays’. Thanks to some very large international mining experiences, the team is well prepared to take on the next big opportunity here in Canada.

“We’d been involved in a very challenging project in Africa where we had a very high ash coal, requiring careful washing to become a very successful hard coking coal operation which is operating to this day,” Mallyon says. “As a result of that experience, when we looked at the initial coal quality data for Grassy Mountain we did notice all the historical mining had largely been small underground development using very small equipment and really nibbling at the fringes of the Grassy Mountain area.”

Historical processing of the coal amounted to a single stage screen, size and wash to produce a semi-soft type product that had been largely sold as thermal coal for power generation.

“When we looked at the composition of the coal we felt there was real merit if we could wash it and blend it in such a way we could produce a very good coking coal. It was all very good in theory but it was only within the last 12 months that we really started to prove that theory,” Mallyon continues.

Community Support

Other factors that gave Riversdale confidence in moving forward with the project included a local community that was very supportive of coal mining due to a long historic connection with the industry.

Many people in the area still work in the industry, but must commute to other municipalities in Alberta or to the eastern part of British Columbia. The logistical infrastructure at Crowsnest Pass also looks world-class to Mallyon and his team thanks to the convenient access to the CP rail line. The project site is just 2km from the rail line and enables the coal to be transported west to Vancouver or up to the Ridley Terminals, a port further north in Prince Rupert, B.C.

A large project such as this has the ability to create a number of good, high-paying jobs, including construction jobs in the early going and then jobs for workers mining the pit for the lifespan of the project. It’s expected there will be about 1,000 people employed for the 18-month construction period.

At Grassy the plan by Riversdale is to have as few people as possible onsite, more for safety reasons than anything else.

“We’re looking at about 200 people who would be employed full-time at the mine but supporting the 200 are of course numerous contractors,” Mallyon estimates. “Based on past experience, for every person we employ on the site there are about seven people employed via sub contractors supporting the site staff.”

With each international project undertaken, Mallyon and Riversdale have always made a conscious effort to employ local citizens from the region whenever and wherever possible and they are certain there will be a large enough pool of eager young people looking to work with them.

Grassy Mountain is by far the most advanced project at Crowsnest Pass in large part because there had been a previous amount of work had been facilitated there.

“The thing we picked up with Grassy – which is probably the biggest challenge for a junior mining company – is that it had been well drilled; there had been 364 bore holes and about 46,000 metres of drilling,” Mallyon offers. “To bring our project into even pre-feasibility studies you need a very solid resource base and it needs to be well drilled.”

Because Grassy Mountain had its predecessor companies take on a number of feasibility studies, it saved Riversdale Resources from having to spend another five years trying to do the same required work.

When drilling started in November 2013, Mallyon and his team were able to simply clear off some of the old drill pads, refurbished the drill roads and they were off and running very quickly.

The environmental study, because it encompasses a four-season study, is due for completion by July, 2015.

“The project has moved fairly quickly,” Mallyon confirms. “We’ve had the advantage of all the previous work that had been completed by Consol and Devon (the previous owners) to a very high quality in our view.”

The open pit dimensions are roughly 6.5km in length and about 2km wide. At Grassy Mountain, Riversdale was able to utilize a huge drill database of 364 holes, as well as previous work on coal quality, mine planning and full pit optimization.

“It’s become quite a significant project even by our experience last time, in which we had quite a large project in Mozambique but this one is proving to be not far off in terms of its operating dimensions,” Mallyon remarks.

Timelines

Mallyon is hesitant to offer a specific date as to when he’d like to see the mining site up and operational.

He feels the danger for most companies in setting dates is that they do depend on a government to approve permitting and while no major obstacles are foreseen, it’s likely that there will be people who are concerned about the redevelopment of the Crowsnest Pass mining centre and that will impact the timing for permitting and getting the project into operation.

“On our timeline, with development and permitting and putting infrastructure together to get the coal on the rail we’re looking at a late 2018 startup,” he predicts. “That to us is a realistic timeline but our approach in terms of permitting is that Canada is no less onerous or diligent than what we would find with the permitting authorities back in Australia.”

Riversdale is cognizant of all the issues that must be dealt with including the public consultation review process, which will enable locals and non-locals to review that EIS (environmental impact study) and provide the company with their feedback – good and bad.

The expectations of Riversdale is to kick off the project with the mine producing 2 million tonnes of coal per year with a ramp up throughout the course of late 2018 through to the end of 2019. The first full year of production will likely be 2020, and Riversdale recently secured its first 2 million tonnes of port capacity under a 10 year arrangement with Westshore Terminals located south of Vancouver.

“The project resource base has grown significantly,” Mallyon adds. “The feasibility study is looking at an expansion within a few years time to 4 million tonnes per annum, which to us is pretty much where the steady state for the project should exist, probably four years after initial startup.”

There are still a number of areas on the Grassy lease where Riversdale hasn’t yet drilled, nor had the predecessor owners. The target is at least a 25-year life at 4 million tonnes per annum, although Mallyon openly believes the life will perhaps grow to 30 years or more. Martin says Grassy Mountain’s capital costs, as well as its operating costs, are brought down significantly by its low strip ratio.

“I agree with Steve in that Grassy will likely grow to 30 years or beyond,” Martin adds. “By then we’ll have a lot more data on those other three projects which will keep us active in that area for a longer period of time than that.”

Along with the Grassy Mountain Project, which comprises a hard coking coal development opportunity, there are also three metallurgical coal exploration opportunities, consisting of the Bellevue, Adanac and Lynx Creek properties. Riversdale has done some exploration work this year on all three of the properties.

“The hard choice for us is what would come immediately after Grassy because both Adanac and Lynx look to us to have the same coal,” Mallyon replies. “What we’re hoping to do as we get the feasibility study under control over the coming summer is we’d like to do a first drilling on those properties. Adanac has had mining before – there was a strip mine nearby so we’ll get our geologists to go out and do some mapping.”

“In addition we know Bellevue has coal on it coming to surface so we know those three properties have coal similar to what we’re finding on Grassy,” Martin interjects. “Bellevue is not far from Grassy on the same side of both the towns of Blairmore and Coleman. We may be able to use some of the same infrastructure developed initially for Grassy to establish a satellite opportunity within the Bellevue leases.”

The attractive characteristic of the coking coal world for Riversdale is that it’s essentially where most of the Teck brands are selling their premium hard coking coal, which is company’s primary target. Both Mallyon and Martin make it clear they are not producers of thermal coal. They see that as a very different market to metallurgical coal. They are likely to produce a small amount of secondary product but it will be a semi-hard product or a pulverized coal injection (PCI) product.

“Historically there probably was some view that Grassy would produce a coking coal and some thermal coal,” Martin adds. “The last 12 months have included a lot of work on the coal quality and there is no thermal coal going to be produced whatsoever.”

These are costly ventures. It brings up the possible option of joint ventures or going it alone. From personal experience, Mallyon says it’s better to have one captain of the ship in order to get the project done on time and on budget.

“We’re not averse to bringing partners in but they’re probably more in the line of people who are likely to take our coal, such as the steel makers or a specialist investor that wants direct exposure to the project,” Mallyon offers. “At this point we find it much more efficient going through feasibility study into development to own it 100%.

Primary Purchasers

The main buyer of the coal is anticipated to be primarily in the Asian steel-making industry. It’s several of the larger countries on that continent, which bodes well for Riversdale as the company has developed excellent working relationships with some influential steel makers in Japan in particular. They are known as being very demanding clients in the hard coking coal sector but they also carry a reputation of being the most loyal to those who treat them right. Excellent relationships have also been cultivated with South Korea and China. At various points, Riversdale has considered Chinese partners coming into the company’s African projects.

This particular coal suits not only the north Asian market but it also is very attractive as a mid-vol coking coal to the steel makers in South America and in particular Argentina and Brazil where there are four steel makers. Mallyon and Martin know at least two of them who would be receptive to this type of product.

“With the widening of the Panama Canal we think eventually there will be some scope for us to move product efficiently into the Brazilian market,” Martin says.

As previously noted, after being in Africa for almost a decade it was the original plan for Riversdale Resources to return to Australia and develop projects in the homeland, but the Canadian coals looked to be fantastic quality.

“The real challenge for us was getting over the massive rail distance,” Mallyon says. “It wasn’t until we sat down with CN and CP and understood just how competitive Canadian rail and ports are compared to our home country. It was a no-brainer to come here and then Grassy came along, so it was the perfect combination.”

There is no doubt Crowsnest Pass is the crown jewel for Riversdale Resources, but the Chickaloon project in Alaska is another potential large-scale North American venture.

“With Grassy we acquired a non-project, a massive number of drill holes – 45,000 metres of drilling and feasibility studies, Mallyon says. “But with Chickaloon we acquired an exciting project that had been partly drilled in the 1920s by the U.S. Navy looking for a fuel source and then abandoned for the next 60 years until a couple of groups including some steel makers tested the coal. We found a potential source of hard coking coal but looking at that project it’s on about a seven-year development cycle. At the moment we’re focused our financing efforts on Grassy.”

Rather than have the project sitting there for too long we have looked at joint venturing that project but then it comes down to the issue of finding the right partner. Chickaloon may get a closer look but not until after the feasibility study is wrapped up here in Canada for Crowsnest Pass where there stands to be a long and prosperous future for Riversdale Resources.

“I’m sure there are other fantastic opportunities but we’ve found what we’ve been targeting for some time in Canada. It has all the elements we require to get a world-class competitive coking coal project into production,” Mallyon states.

Over the next three years Riversdale is hoping to have feasibility studies done on at least one or maybe two of the other projects but also be confident in the expansion of up to 4 million tonnes per year. But to run as a one-mine company is extremely high risk, which is why Mallyon and his team always want to look towards responsible expansion.

“We’re a small team but we like to keep busy,” Martin says. “There’s a lot of permitting and financing to do over the next few years. There will be a time when Steve and I will have to focus more on the corporate side of the business because we are talking circa $350-400 million. We’ll push very hard to become a multi-mine unit within the next five to 10 years. It gives you a whole lot of strengths not available to the single mine operation.”

Seeing the company grow and become more successful is of course also integral to Riverdale’s shareholders, who want to also see a return on the money that has been invested from as far back as three years ago. Mallyon and Martin have the utmost confidence that Crowsnest Pass is just the beginning of a very successful journey.

www.rivresources.com

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